India’s buzzing economic activity belies fears of a slowdown

India’s economy picked up speed in December as business conditions improved, marking a rebound for the South Asian nation that had showed signs of a slowdown the preceding month.

The needle indicating so-called animal spirits moved right after holding steady for five straight months — indicating stronger overall economic activity as 2022 drew to a close. Consumer spending boosted tax collection and manufacturers signaled optimism about the future, while services sector saw expansion of new businesses.

“While some may question the resilience of the Indian manufacturing industry in 2023 amid a deteriorating outlook for the global economy, manufacturers were strongly confident in their ability to lift production,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Exports
Exports fell 12.2% in December compared to a year ago, but at $34.5 billion were still at a three-month high in value terms, data released by the trade ministry showed. Exports remain competitive despite global headwinds, Commerce Secretary Sunil Barthwal said.

Imports fell 3.46% from the previous year, narrowing the trade gap for the second month to $23.76 billion. Moderating commodity prices and a broader weakening of the dollar have helped lower India’s import bill, but a continued weakness in exports could hinder recovery from a record-high current account gap seen during the July-September quarter.Consumer Activity
Liquidity in the banking system tightened, and bank credit slowed to 14.9% in December, from 17.2% in November. The Reserve Bank of India’s 225 basis points increase dampened demand for housing, automobiles and consumer goods. Still, double-digit loan growth was a vast improvement over the single-digit expansion observed between September 2019 and March 2022.

Goods and services tax collection, which helps measure consumption in the economy, rose 15%. Revenue collection has stood at more than 1.4 trillion rupees for 10 straight months. New vehicle registrations rose 8.2% in the month, according to data from the Federation of Automobile Dealers Associations.

Market Sentiment
Electricity consumption, a widely used proxy to measure demand in industrial and manufacturing sectors, rose from the previous month. Peak demand at the end of December rose to 171 gigawatt from 162 gigawatt a month ago. And India’s unemployment rate climbed to a 16-month high of 8.3% as job creation failed to keep pace with a growing workforce.